Yes, absolutely spot on in terms of PAT expected for the year. However, on the valuation front I would give it a band of at least 20-25x. In my opinion, Manappuram Finance deserves a MCap of at least 30k Crs. Currently gold loan companies are so well placed in the economic cycle that I would rate both the gold loan companies just behind Bajaj Finance.
So, what are the issues which has been making the market nervous about NBFC’s:
Asset Quality: The asset quality is pristine. The best in the sector. The asset quality of Manappuram Fiance is actually better than Bajaj Finance. With gold prices on an upward curve, I don’t see any asset quality worries for the next 2 years at least. If anything, the book is only going to get stronger with Lower LTVs. Folks who are interested in the sustainability of high gold prices may like to refer historical gold cycles. Once in an uptrend gold cycles, tend to last 4-5 years.
Liquidity and Capital Requirement: Both the gold loan players are pretty well placed in terms of capital adequacy. Since the gold loan business is actually a cash cow (apart from being highly lucrative) and keeps spewing cash, technically they don’t need to raise fresh capital to keep growing. From a liquidity standpoint also, they are pretty well placed because of the unique structuring of their product which always ensure positive ALM. Specially for Manappuram Finance, which has a higher proportion of shorter tenure products, there is Zero ALM. Here also, I feel both the gold loan companies score better than Bajaj Finance.
Quality Growth- High quality growth is where Bajaj Finance outscores Manappuram and Muthoot. Now, if I have to compare both the gold loan companies, Manappuram is growing at far more healthy CAGR than Muthoot and that is why I have put my bet on Manappuram. Manappuram is growing at a very healthy rate of 35% CAGR for the last 8 quarters and the runway seems to pretty reasonable going forward.
So, on all the 3 parameters which has been bothering the markets about NBFC’s, Manappuram scores very highly. In fact on 2 of the critical parameters, it is better than the current golden boy- Bajaj Finance. In the current economic enviornment, the gold loan companies will do very well. I still feel that there is a perception issues regarding both the gold loan companies and that’s why their valuation is still subdued. Although, I see that a rerating is going on currently, I still feel there is long long way to go. There is no reason why both these companies should be trading at less than 25x. There is no NBFC in the market currently, which shares the kind of economic and business characteristics that Manappuram Finance has.
P.S.: I own a significantly large chunk of Manappuram Finance in my portfolio and hence please take my hypothesis with a bowl of salt.
Gold is on an uptrend and if it goes above the $US1,535 level it would be the next leg in the bull market in gold, Matousek said.
——————————————————————————————————-
Diversification is the the key to investing
If for some reasons rupee devalues in comparison to US dollar then all equity gains in India will be less positive or relatively negative in dollar terms
So for diversification there are couple of options
international equity (but USA can also go in recession so it is also not safe )
gold
Do we need 5-10% gold in our portfolio to safeguard against recession,global uncertainty or uncertainty in Indian economy
——————————————————————————————————-
Very nice talk by Shankar Sharma
His views are that one fine day we will lose all if we are not well diversified across all asset classes
Though I listen this guy just to learn something out of his long experience… However, I found this guy is not trust worthy…Some time back… If Iam not wrong late 2018 when Oil heading for 80 $ he said government should’t levy any taxes and India going to have deep trouble due to this.
…and few days back he appear again in news channel said… Gov shouldn’t do disinvestment…
In above interview he says diversification across countries… For Retail investors and also for some small HNI it doesnt make any sense to go and invest across globe… Where India itself is one of the fastest growing economy
india as far as i know is a net importer of gold, any depreciation of rupee to the dollar should inflate spot market prices here in india? isnt that thinking correct?
isnt that a primary factor besides the demand in general as to why gold is almost 60% up from the recent lows in indian markets while in dollar terms international market is up by 45%…
That’s the basic reason for demand of gold as an investment in India for last 80 years. Even though gold as an investment is not a productive one, it somewhat protects the investor against inflation and fiscal misadventures by successive governments, which we never lack. Gold is a proxy for investment in USD for most of rural India.
Spectacular set of numbers from Manappuram to say the least - See the Result and Investor Presentation
Interesting facts:
Revenue up by nearly 28% YoY and 13% MoM against cost increase by 21% YoY and 6% QoQ leading to a whooping 47% growth in PBT YoY and 17% QoQ.
Tax benefit is as expected.
Cost of borrowing improved to 9.3%.
CRISIL recently upgraded the rating to AA and management in the process of engaging a global credit rating agency - i think this is phenomenal and will vastly re-rate the profile of the company.
More than 150 new branches opened and another 50 more to open during the rest of current year.
Ashirvad MF is now 5th largest MFI in the country having a networth of 800 Crore and presence in 23 states(management is claiming that they are now the most diversified NBFC in India).
Great results but what is the nature of this 60cr one time gain during Q2? Also it seems Baring has decided to exit as their director exited the board.
As per MD CEO mr nandkumar:
“Our Q2 performance represents continued progress along our stated objective of growth with profitability. We have achieved good increase in business volumes and profitability thanks to strong all-round performance from all our verticals. We are now well placed to keep up the momentum,” said MD & CEO, VP Nandakumar.
The Board of Directors of the company approved the establishment of a medium term note (MTN) programme to raise up to $750 million in one or more tranches, in compliance with regulations by the Reserve Bank of India. It has authorised the Financial Resource and Management Committee of the Board of Directors of the company and its members to take necessary steps for establishment of the medium term note programme and issue of debt securities under the same.
Competitor Muthoot Finance has recently started raising funds from Global Medium Term Note programme for a total of $2 billion through multiple traches.
ICICI Securities had said in a report last month that rural slowdown is limited to certain sectors with negligible near-term impact on low-income rural households.
Rural households with less than Rs 1 lakh annual income form a major portion of MFIs’ customer-base. About half the MFI loans are being used for producing basic consumption goods and not for purchasing aspirational items like two-wheelers.
Gold loan tonnage growth 10-12% per year expected
In good times it can be up to 15%
Currently Gold 67% and Non gold 33% and over next 5 years we expect 50% :50%
Non gold loan portfolio growing fast
One time benefit in PAT of 60cr which will not happen again
So from interview it looks that the q3 PAT will be 407-60= 347cr plus 5% equals to 364 cr
Q4 PAT 382 cr
(Q1was 270
So annual profit excluding one time profit will be around 1363 cr and eps will be 16 and pe will be 10 at CMP of 163
Provided gold price doesn’t plummet and no major geopolitical dramas
In long term if consolidated profit grows at 20% then in next 5 year EPS will be 38 and PE will be 4.2
But there are many risks
gold price going down
NPA can rise
regulatory risks like LTV going down or cap on interest rate
assert liability mismatch
single man running the show risk
6)competition by Fintech companies
slowdown in India
7)small finance banks and private banks increasing competition
liquidity issues /not able to raise money
rising interest rate
Possibility of upside due to
gold price going further up of major recession or due to momentum breakout
PE rerating to higher band
improving NIM due to lower borrowing rate
Ashirwad demerger
Not sure how much is factored in by market as it’s still trading at lower PE band
Disclosure: Invested.
Nice article by Vp nandkumar https://www.thehindubusinessline.com/todays-paper/tp-opinion/article29940197.ece#
Good results by moothoot also .The muthoot management said the demand for gold loans continues to remain strong. Gold loan book growth for FY20 will be 15 per cent, as company has tapped various funding avenues, it said.
“Gold prices at life highs in rupee terms have resulted in strong demand for new loans and huge margin of safety on existing portfolio. Availability of loans for end customer has become difficult due to funding constraints faced by majority of NBFCs. In such a situation, gold loan becomes extremely important avenue of funds for the customers
. https://www.barodaetrade.com/Reports/ManappuramFinance-Q2FY20ResultReview7Nov19-Research.pdf
MANAPPURAM FINANCE
The company’s consolidated profit jumped 82% in the September quarter to Rs 402.3 crore, which led to a 20% increase in consensus target price. “Pick-up in gold-loan in the coming quarters, higher gold prices and favourable regulatory environment will act as a positive catalyst. We believe that the company has the potential to deliver 20% plus RoE (return on equity) driven by RoA of 4% plus,” said IDBI Capital, retaining buy with a target price of 195 https://www.goodreturns.in/personal-finance/investment/7-advantages-of-gold-loans-in-place-of-other-loans-1102403.htmlof Rs 195.
#Gold Loan offer# Looking for urgent funds? Get Loan in 45-60 minutes at special interest rate with HDFC Bank Gold loan. 1) Instant money up to 10 lacs. Offered on KYC and no other documents.
2) Term Loan & Overdraft available.
3) No Foreclosure Charges After 3 Months. 4) Lower Rate of Interest 10.5% for Loan > 5Lacs.
5) Gold Jewellery as safe as keeping in locker with HDFC Bank without paying Rent.
Regard’s HDFC BANK GOLD LOAN Chamunda Circle Branch, Opp-Jain Mandir, Borivali- West
I got this message from HDFC Bank. Makes me wonder how will the likes of Manappuram and Muthoot compete with banks or be able to offer gold loans at 10.5%
Requirements for gold loan by Hdfc
Submit any one of the following:
Passport (Not expired)
Driving license (Not expired)
Voters’ ID Card
Aadhaar Card issued by UIDAI
PAN (Permanent Account Number) Card (along with any of above mentioned documents) or Form 60
One Passport Size Photograph
Note: *Loan to be granted for agricultural/business/personal purposes only. Loan cannot be availed for purchase of gold coins, jewels or jewellery, land or any speculative purposes. Loan approval is at sole discretion of HDFC Bank
So many conditions
First go to a big bank then find the proper counter .Then apply .
You might save few hundred rs per month but not many will make so much effort
Most farmers prefer local non branded jeweller in their neighbourhood to get loan
Most of them don’t even reach to Manappuram/muthoot
